Structured Settlements and The Federally Supported Health Centers Assistance Act of 1995

by Don McNay CLU, ChFC, MSFS and Thomas Lee Gentry

Introduction

Legislation that will have a dramatic effect on medical malpractice litigation is the Federally Supported Health Centers Assistance Act of 1995.(FSHCA). The Act extends coverage under the Federal Tort Claims Act. (FTCA) to community health centers that receive federal funding under one or more federal programs and whose programs have been "deemed" to be covered by the Department of Health and Human Services.

Structured settlements are designed to help people who have little experience in investing large sums of money. Society and claimants benefit from having this money management tool as part of a settlement.

Due to the unique characteristics of the FSHCA, structured settlements will be especially useful in settling these claims.

History and Implications of Federally Supported Health Centers Assistance Act

The Federally Supported Health Centers Assistance Act was implemented as a three year experiment in 1992. Congress then re-authorized the act permanently in 1995.

"The statute covers grantees under the following programs: Community Health Centers, section 330 of the PHS Act; Migrant Health Centers, section 320 of the PHS Act; Health Centers for the Homeless, section 340 of the PHS Act; and Health Centers for residents of public housing, Section 340A of the PHS Act."

"The measure also allows the Secretary of Health and Human Services to 'deem' employees, contractors, and other entities as employees of the Public Health Service placing them under the Federal Tort Claims Act."

"A spokesperson for Representative Nancy Johnson of Connecticut said that the health centers were spending as much as $40 million a year in malpractice premiums but were rarely sued."

Federal Torts Claims Act

The procedure for injured patients under the Federal Torts Claims Act is different from when the centers were covered by private insurers. FTCA claims are first handled as administrative claims. If the claim is not settled within 6 months the claimant can consider the claim denied and file a civil suit in federal court.

FTCA cases are heard by a judge, not a jury. The named defendant in these cases is the United States of America. Although a plaintiff may bring a malpractice action in state court against a clinic or its doctors, the plaintiff may find himself removed to federal court with the United States substituted as the defendant.

Attorney fees are limited to 20% on administrative claims and 25% on settlement of lawsuits. Since medical malpractice cases usually require high case expenses and time commitment, plaintiff's attorneys have usually received higher fees for those claims.

Unlike private health insurance carriers, there is no limit to the amount of coverage to the health center under the Federal Tort Claims Act; however, punitive damages are not available under the FTCA.

Although a community health center may be deemed covered under the FSHCA act, it may still maintain some or all of its previous medical malpractice insurance. By statute, those policies are surrogated to the United States and generally the policy limits will be exhausted before the United States will pay; therefore, plaintiffs may end up litigating against medical malpractice defense counsel retained by the insurance carrier, as well as an Assistant U.S. Attorney, as co-counsel.

Structured Settlements

The primary reason for structuring a claim is to keep a plaintiff from dissipating funds unwisely. A structured settlement is a tremendous money management tool for someone who has little experience in handling a large lump sum of money.

A unique aspect of claims generated by the Federally Supported Health Centers Assistance Act, is that almost everyone receiving injury awards will be people who have had little experience in handling large sums of money. The programs that the FSHCA assists, such as programs for migrant workers and homeless shelters, are designed for people below the poverty level.

Although a structured settlement is often thought of as something to be used in large dollar cases, there is a societal benefit to offering structured settlements in a majority of FSHCA claims, large and small. The claimants will benefit by having access to a money management tool that can be designed to meet their specific needs. The inability to dissipate a lump sum will mean that a claimant has a better chance to be self-supporting and not to need additional government assistance.

FSHCA claims are particularly well-suited for structured settlements given the lack of the availability of punitive damages. Without that variable, counsel may more readily agree on the level of medicals, lost wages and earning capacity and pain and suffering. The prospect of facing a judge rather than a jury should further narrow the range of damages counsel can reasonably anticipate.

Along with traditional structured settlement concept, there have been over 300 claims settled by the federal government with a concept known as the irrevocable reversionary trust. It allows a trust to be set up to fund to fund specific needs and have any excess moneys revert to federal government at the death of the claimant. This type of technique is usually not available from a settlement with a private insurer.

Effect on Federal Government.

The United States Attorney’s offices nationwide will have to allocate additional staff and resources to defend the new cases generated by the FSHCA. There will also be additional allocations for the government to pay the claims.

Conclusion

The Federally Supported Health Centers Assistance Act of 1995 will make a change in how many malpractice claims are handled. Structured settlements will be a popular technique in settling these claims.

Don McNay, CLU, ChFC, MSFS, is the owner of the McNay Settlement Group, a structured settlement consulting firm located in Lexington, Ky. He is a graduate of Eastern Kentucky University and has Masters degrees from Vanderbilt University and the American College.

Thomas Lee Gentry is an Assistant United States Attorney for the Eastern District of Kentucky and is a former Assistant Commonwealth Attorney. He is a graduate of the University of Kentucky and the University of Louisville Law School.

The views expressed are the authors own and do not reflect the views or opinions of the United States Attorney’s office, The United States Department of Justice or any other public or private entity.

Endnotes

1. Benor, David, The Federally Supported Health Centers Assistance Act of 1992: An experiment in malpractice...., Vol. I 10, Public Health Reports, 05-01-1995, pp. 357.
2. Benor
3. Benor
4. Medical Malpractice, Law and Strategy, February, 1996, page 1

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